The Con Man's Handbook
While no one is advocating use of the many "legal" crime practices depicted in Six Hours Past Thursday, being aware of such practices can only be helpful to anyone engaged in a business of any kind, for "defensive mechanism" purposes.
Examples? Are you familiar with some of these common strategies of the "legal" con man?
- How to collect multiple (up to eight) commissions, fees, and kick-backs from a single business transaction?
- Are you as familiar as you should be with the "art" of the under-the-table deal?
- Do you know how to collect two finders' fees--from both sides--from a financing deal (one from the borrower, one from the lender)?
- How about pumping up the value of obsolete tooling, to, in turn, inflate the value of a manufacturing business up for sale? Ever run into this?
- Ever have to contend with the under-valued assets method of "short" selling?
- Dummy corporations abound. Stick a pin in them and the air quickly deflates these balloons. Know how to recognize them?
- Unlisted and under-valued inventories--ripe for selling off to competitors--after the sale of a business. Are you aware of this technique--the systematic disemboweling of a company, prior to putting it up for sacrifice to a cannibalistic ritual?
Business Broker, Steve Draves, the protagonist (or, should we say, Anti-hero) of SIX HOURS PAST THURSDAY is an Expert in the "art" of such legalized flim-flammery. For a glimpse of how he operates, following is an excerpt from a cocktail party setting as described in Chapter 8:
...In the meantime he listened in on the conversation of the group, waiting for any possible clues through which he could set up a new patsy. Talk ranged from golf, yachting, football, world travel, literature, and the theater--to panning the government for foreign aid, civil rights strife, and taxes. Then it came: a clue. A blank-faced youth with a cleft chin and wavy eyebrows started talking stock market and investments just as Jordan piloted Betty off to introduce her to another group and Brightly came up and slipped in alongside Draves.
Draves thought he smelled something as the youth, who had been introduced to him as Stafford Burns III, was saying, "And, in just the twenty-two days I held Amalgamated Engine it jumped from twenty-four to thirty-nine. I made a real killing on that one."
Draves baited his hook. "You're Burns of Burns Mustard, aren't you?" He smiled in his best it's-a-pleasure-to-meet-such-a-dignitary manner.
"Why, yes." Burns looked patronizingly at him. "Though we changed the name to 'Mild-tine' several years ago."
"Yes, I recall now. I used to follow the rise of your business closely. Certainly have to give a lot of credit to your family. They were rugged pioneers in the food processing business." Draves was at his unctuous best.
The corners of Burn's mouth turned up ever so slightly in the hint of a smile.
Draves could see he had won the first grain of acceptance. He quickly followed through. "On that shrewd buy you made on Amalgamated Engine, I'll bet you knew that the company president, the executive vice president, and three members of the board were buying heavily in their own stock. I got in on that too. Picked up the tip from the newsletter, Insider Stock Transactions & Tips."
Burns cagily eased himself out of the group conversation and edged closer to Draves and Brightly. "Do you read it too?"
"Yes," Draves answered. "I've been accused of taking leave of my senses by my friends. It's expensive: $150 a year." He gave Burns a sly, we're-birds-of-a-feather smile. "But you and I know it pays off, don't we?"
The conversation drifted into get-acquainted talk, then was deftly steered back to stocks by Draves. He said, "I'm overloaded on mining stocks now. Guess I'm going to have to sell my ten thousand shares of Kensington Mining." He shook his head ruefully.
"What's that been doing?" Burns asked. It was obvious by his unaffected expression that he was not familiar with the stock at all.
"Haven't you noticed the feverish activity on it?" Draves questioned. "Morey Shapiro, the president of Kensington Mining, has been buying up the stock like he's got a tape worm to feed."
"Oh!"
"He sure has," Draves added. "If you've got a copy of the latest issue of Insider Stock Transactions & Tips look it up. I think the latest issue is September seventeenth. He bought ten thousand shares; it was reported in that issue. The week before he bought twenty-five thousand shares, and the week before that fifty-thousand."
"Jeez, the market's really drying up, isn't it," Burns said excitedly. "All he can scrounge up now are ten-thousand share blocks?"
"That's right," Draves said. "I was lucky. I got one of those few remaining blocks, I guess, ten thousand shares. Bought the stock last week at one. It's now up to 2 1/2. Then Draves shook his head sadly. "Too bad. Guess I'll have to sell it. My broker's been on my back. He says my portfolio is just too much out of balance, way to heavy in mining stocks."
Burns acted like a dog "speaking" for a bone. "How much do you want for it?"
"Latest quotation today was 2 bid, 2 7/8ths ask," Draves said. He paused and frowned, as if he were vacillating, considering bestowing a kindness on Burns equivalent to tearing off his right arm and giving it to him. "I'm afraid I've just gotta get rid of some of my mining stock." He broke into a smile that rang of capriciousness. "Anyhow, I've had my fast ride on Kensington Mining. May as well give somebody else a chance. I'll let it go for the bid price: $2 a share."
"You will?" Burns seemed happy as a kid with a new birthday toy. "I'll call my broker tomorrow..."
"Why not save the brokerage fees? We can make a private transaction out of it. No street name involved here. I've got it in my own name."
"A private transaction? Say. That sounds like a great idea."
Draves handed Burns his business card and assured him he would be in his office the next day, though there was no hurry; they could get together anytime it was convenient for Burns. Burns assured Draves that tomorrow would be convenient for him and that he would call him without fail.
Brightly drew Draves aside and away from the group. "It was beautiful how you set up that nincompoop. But how about filling me on on the details. I don't quite follow.
"Simple, Mark." Draves casually stirred his Martini, and then took a good-sized sip. "First principle to remember when you're trying to palm off worthless stock is to find someone who has just made a pot on another stock. This makes it much easier for you. They're real receptive then, real greedy to make still more.
"Now, seeing as how Burns met this qualification, I tackled him. As soon as I heard him drop that remark about Amalgamated Engine I had a good idea he read Insider Stock Transactions & Tips, which told him that the company officers were buying heavily in their own stock. This is a situation similar to what we discussed up at your apartment last week. There hasn't been any news on Amalgamated Engine in other places lately. Even the odd-lot traders haven't been buying it, and the institutions have been leaving it alone.
Thus, it was just a matter of the process of elimination. With a very minimum of news being published on the company it cut down the possible sources of information that would make him buy it. So, once I established that--what his source actually was--as you heard, I slowly steered his interest around to Kensington Mining."
"Go ahead. I'm all ears."
"Well. Morey Shapiro, the president of Kensington Mining, has gone bankrupt four times in the last eight years. He always sets up his bankruptcies in a particular pattern. He knows how many people there are around who watch what company officers are doing in their own stock. So, he creates an illusion."
"An illusion"?
"Yeah." Draves went on. "He'll never buy one big block at any time. He stretches it out. He'll buy one-hundred-thousand shares one week, then, say, seventy-five thousand the next, fifty-thousand the next, and so on, 'til he gets down to ten-thousand-share blocks Then he quits and waits. You see, he's creating the illusion that he's not just buying his own company's stock, but that he's frantically buying it. This is reflected in the diminishing quantities.
"The stock-buying public thinks he's buying all he can get his hands on. And, naturally, if that be the case, the more he buys, the less would be available to him. So, the quantities would keep going down and down. After the public sees this pattern it figures he knows something awfully promising about his own company, so, the public, too, gets in on what it thinks is the bandwagon. More and more people start buying, thus pushing the stock price up and up."
"I see. Then when the stock price goes up to a level where he can make a kill he dumps the stock and goes bankrupt, letting all the fools who'd just bought the stuff suffer the pangs of withdrawal and remorse." Brightly quickly caught up with the strategy.
Draves nodded. "Precisely. So every time I see that peculiar buying pattern of Shapiro's, I know he's setting up another bankruptcy. Hence, I buy in quick and sell quick, before he does. He usually holds his stock three to six months in order to create an atmosphere of stability."
"Shrewd," was all Brightly could say.
"So, I line up this boob and sell it to him for $2 a share. It will net me a $10,000 profit for holding that worthless paper just two weeks."
"What does the Securities Exchange Commission think of Mr. Shapiro's little racket?"
"Mark, I'm surprised at you. It's not a racket. It's all perfectly legitimate. On every new venture he sets up, he covers himself well. He's got some broken-down, second-hand mining equipment, some assays and geologists surveys saying some minerals 'might' be in the ground. Optimism isn't illegal. So he thinks he's going to hit fabulous ore veins and enthusiastically buys his own stock in anticipation of this. Then, six months later, he changes his mind and sells. Nothing illegal about changing your mind. There's nothing the S.E.C. can do about it."
"Legalized embezzlement. Hmmm!" Brightly's admiration for Draves' tactics was undisguised. "But, what's this line you were giving Burns about a private transaction?"
"Simple psychology, Mark. I was trying to make him want to keep up with the Joneses."
"Keep up with the Joneses?"
"Yeah. Everyone's reading and hearing these days about the private transactions between big insurance companies, mutual funds,and institutions and companies of all kinds, involving big blocks of stock. They're circumventing the stock exchanges and brokers more and more. It's becoming a prestige thing. More and more individuals would like to be able to tell their friends they've engaged in a private stock transaction. If feeds their egos, makes them feel big. Besides, I wanted to steer him away from his broker because his broker might talk him out of it."
"Is there any way to turn a buck you don't know about?" Brightly said with unconcealed admiration, then added, "You said the thing to do, if you had some worthless stock to pawn off, is to find somebody who has just made a pot on another stock. Ain't they hard to find?
"Not at all."
But, for every few winners in the stock market there are quite a few losers."
"Sure. But the winners are the easiest to find. Let me ask you this: have you ever heard anyone at a cocktail party bragging to his friends about how much money he'd lost? Have you ever heard anybody boasting about how'd he'd been taken?"
"The old ego thing again, huh? 'Nuff said. I get what you mean."
Other examples enumerated between the covers of SIX HOURS PAST THURSDAY include:
Get out the barbeque sauce. Sprinkle it liberally over this steak, dig in with knife and fork, and have a treat. Enjoy, not only the taste, but the sizzle, of SIX HOURS PAST THURSDAY. It will help equip you to defend yourself from many of the commonly used types of "legal" crime out there--in our big, ever- ethically-challenged jungle of American business.